A new rule proposed by the U.S. Citizenship and Immigration Services (USCIS) grants limited entrée to entrepreneurs establishing stateside startups. The “International Entrepreneur Rule” would permit the Secretary of Homeland Security to offer parole (temporary permission to be in the U.S.) to individuals whose businesses provide “significant public benefit.”
So what is a “significant public benefit”? According to the proposed rule, an entrepreneur can meet this standard by demonstrating that the startup has substantial potential for rapid growth and job creation, and that the entrepreneur’s parole would significantly help the startup conduct and grow its business in the US.
These are still abstract concepts, so the rule proposes benchmarks to evaluate entrepreneurs and their businesses. To qualify:
- The startup must be recently formed in the U.S. (i.e., generally within 3 years of its application).
- The individual must possess a substantial ownership interest in the entity (i.e., generally 15% or more) and have an active and central role in the business.
- The entity must have:
- received substantial investment from qualified investors (at least $345,000) with established records of successful investments; or
- received substantial awards or grants from certain governmental entities (at least $100,000); or
- partially satisfied one or both of the above criteria and must submit additional evidence of potential public benefit (e.g., acceptance into a startup accelerator, creation of new technologies or focus on cutting-edge research).
Notably, “qualified investors” are not determined based on the traditional definition of “accredited investors.” Instead, the proposed rule focuses on investors’ track records. Specifically, a startup must show that its investors have a history of making startup investments on a regular basis over a five-year period and that at least two of their investments have experienced significant growth in revenue or job creation.
For How Long?
Initial parole terms are for up to two years, and grantees have the opportunity to apply for an additional term of up to three years. Renewal applications are determined on similar criteria as above, but thresholds differ. For example, renewal applicants only need to own 10% of the startup, to account for dilution due to financing rounds during the initial parole period.
Join the Debate
The DHS is currently seeking public comments on the proposed rule, including with respect to the definition of “entrepreneur” and investment thresholds. The proposed rule is a step in the right direction, but will generate comment and criticism, especially regarding its balancing act of encouraging innovation, promoting the public benefit and preventing fraud. While investment thresholds are intended to weed out lifestyle businesses, they may also eliminate endeavors that serve the public good but are not scalable or otherwise likely to provide market venture returns. The five-year maximum parole term seems a close shave given the time it can take from founding to exit (even the proposed rule recognizes that from 2009-2012 the average age of a company at public exit was 7.9 years). Finally, focusing on investor track records instead of traditional accreditation concepts may discourage bad faith parole-for-cash investments, but it is likely to generate uncertainty.
These issues are likely to be addressed during public comment, and perhaps resolved before final publication. The effort is certainly praiseworthy and may permit one or more foreign entrepreneurs to build their “New Colossus.”